Defaults continue to fall for major lenders

Consumers are continually getting their personal finances back in order these days, and June was no different, as Americans cut their default rates on a number of different loan types.

Nearly all loan types in the U.S. had fewer instances of consumers falling so far behind on their debts that their balances had to be written off as uncollectable, according to the latest Consumer Credit Default Indices released by S&P Dow Jones, and the credit monitoring bureau Experian. Default rates across all loan types slipped to just 1.52 percent of outstanding balances, down from 1.62 percent in May, and from the 2.14 percent observed in June 2011.

Among individual loan types, four of the 10 major lines of credit saw default rates to the lowest rates since the end of the recession in 2009, the report said. Further, many loans monitored by the Indices saw default rates dip for the sixth consecutive month.

"June 2012 data continued a positive trend in consumer credit quality," says David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. "Consumer default rates are falling and we are approaching new lows across most loan types. In the last recession most default rates peaked in the spring of 2009; since then the decline has been bumpy but consistent."

How individual loan types performed
The type of credit that had the lowest default rate in June was the second mortgage, which slipped to just 0.73 percent of all outstanding balances, the report said. That was down from 0.88 percent in May, and nearly half the 1.4 percent rate observed on a year-over-year basis. Meanwhile, defaults first home loans also dipped, to 1.41 percent from May's 1.5 percent. It was also a significant decline from June 2011's 2.02 percent.

Credit card defaults remained relatively high in comparison with other loan types at 3.97 percent of all accounts, but that was down from 4.35 percent just a month earlier, and 5.69 percent on an annual basis, the report said. However, despite this high number, Blitzer saw reason for optimism.

"There is only positive news in June's numbers," he said. "In the past three years, households have come a long way in repairing their balance sheets. Looking across our 10 headline indices, only one – bank cards – shows default rates above 2.5 percent and even those are close to their eight-year historic low."

Only one type of loan actually saw an increase in its default rate, but that was nominal at best, the report said. Auto loans written off as uncollectable rose to 1.04 percent from .03 percent in May, but remained well below June 2011 rate of 1.29 percent.

Perhaps predictably, default rates in nearly all of the nation's five largest metropolitan statistical areas declined in June, with only the largest, New York City, seeing an increase, the report said. New York's default rate increased slightly, to 1.64 percent from 1.61 percent, but was still below the previous year's 1.82 percent. Of all the largest cities, Dallas had the lowest default rate at 0.87 percent, down from 1.59 percent annually, and a decline from 0.94 percent in May. Dallas' rate was the lowest observed there in the eight years these studies have been conducted.

Meanwhile, Chicago's default rate dropped for the sixth straight month to just 1.84 percent, down from 2.84 percent as recently as last December, the report said. This was also the lowest rate Chicago saw since August 2007, around when the recession began.

Los Angeles saw significant month-over-month drops, falling to 1.6 percent from 1.82 percent, the report said. That was also down from 2.17 percent in June 2011.

The city with the highest default rate was Miami, but that area has made significant strides in the last year, the report said. In all, 2.44 percent of its outstanding balances were written off in June, but that was down from 5.41 percent in the same month last year. It was also a significant drop from the 2.55 percent observed in June.

Defaults on any type of loan can take a significant toll on your credit score and therefore you should make as many precautions as possible to ensure you can pay all your bills on time and in full at the end of every month. However, you should also take the time to look over your credit report to see if there are any unfair markings that might be having an adverse effect on your rating. Engaging the services of a credit repair law firm may help to hold the credit companies accountable to their obligation for fair, accurate, and substantiated credit reporting.

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